Before launching a new business partnership, it is important to understand all the rights, duties and obligations that go along with that partnership. A partnership is created when two or more individuals decide to co-own a business and share profits. There are no formalities – contracts signed or documents filed with the state – in order to create a partnership.
Even if you did not intend your relationship to be a partnership, if you hold yourself out the public as partners, the law will require you to follow the same rules and duties required of all partnerships. For this reason, it is often a good idea to speak with an Arizona business formation attorney to make sure your company structure best meets your needs.
Partnership rights and duties
Being in a partnership provides many rights that make this business entity choice appealing to many, including:
- Taking part in daily management of the business
- Right to an equal share in the profits
- Access to financial information and company books
A partnership also requires the partners to share many duties and obligations. For example, partners have a duty of loyalty to the business and to the other partners, including the duty to:
- Conduct the business advantageously – business partners cannot knowingly make deals that would harm the business financially or the business’ reputation.
- Keep honest books – each partner is required to keep honest and proper books about the partnership’s finances.
- Be diligent – Partners must work diligently to conduct the company’s business.
- Be honest – each partner must be honest and cannot conceal information.
A hefty obligation involves sharing the losses. Depending on the formation of the partnership, liability may be limited to the extent of the initial investment; however, this is not always the case. Business disputes can easily arise when it comes to apportioning loses.
Partners are jointly and individually liable to third parties for all business obligations of the partnership. This means that if the partnership cannot pay a bill, the individual partners are responsible for the debt.
There is no shield of liability like there is in a corporation or limited liability company. Some common partnership liabilities include: liability for acts of the firm or the wrongful acts of an individual partner if the act occurred in the ordinary course of business.
Considering a new partnership?
If you are interested in learning more about partnerships, limited liability companies, corporations or other business entities, contact an experienced business law attorney. A knowledgeable business lawyer can help you choose the best entity for your business objectives.